Failures in Application Development Outsourcing by aym27109

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									Failures in Application Development Outsourcing Contracts: The Affect of Service
Quality, Relationship Quality, Satisfaction, and Switching Costs

       Dwayne Whitten
       Baylor University
       dwayne_whitten@baylor.edu

Although outsourcing has increased over the last two decades (Lee and Kim, 1999), an
estimated thirty-four (34%) of outsourcing contracts have failed, i.e., have resulted in
switching to another vendor or backsourcing, the return of previously outsourced
functions to in-house resources (Lacity and Willcocks, 2002). Lacity and Willcocks
(2000) have called for a thorough evaluation of outsourcing failures as one of the new
directions for outsourcing research. A literature review reveals that little work has been
completed in this important new area for further research.

Grover, Cheon, and Teng (1996) studied the relationship of the five outsourcing
components (application development and maintenance, systems operations,
telecommunications and networks management, end-user support, and systems planning
and management) with outsourcing success, as well as the effect of service quality on the
relationships between the outsourcing components and outsourcing success. Results
indicated that outsourcing is more successful with systems operations and
telecommunications. Their research found application development and maintenance to
be more prone to failure than highly structured commodity services such as systems
operations, telecommunications and networks management. Therefore, in this study of
outsourcing failure, the application development and maintenance component was
selected. Factors associated with the decision to discontinue these contracts, or more
specifically switch vendors or backsource, will be studied using a survey administered to
top computer executives across the United States whose job titles are analogous to
Manager or Vice President of Application Development. The survey is based on
previously validated instruments for measuring service quality (SERVQUAL) and
satisfaction (UIS). Switching costs and relationship quality will be measured using
slightly modified instruments from Jones, Mothersbaugh, and Beatty (2002) and Lee and
Kim (1999) respectively.

The following hypotheses will be tested:

H1: Service quality is negatively associated with the decision to discontinue an
application development outsourcing contract.

H2: Satisfaction is negatively associated with the decision to discontinue an application
development outsourcing contract.

H3: Relationship quality is negatively associated with the decision to discontinue an
application development outsourcing contract.
H4: Switching costs are negatively associated with the decision to discontinue an
application development outsourcing contract.

Components of service quality include reliability, responsiveness, assurance, and
empathy. Relationship quality is comprised of trust, commitment, communication
quality, cultural compatibility, and interdependence. Satisfaction components include
outsourcing vendor staff and services, outsourcing vendor services, information output,
and knowledge and involvement. Switching costs include both tangible and intangible
costs.

By better understanding the factors that may lead to outsourcing failure, outsourcing
vendors can increase the success rate of outsourcing agreements and companies can make
better outsourcing decisions. In addition, this research will provide an analysis of
backsourcing and vendor switches, two increasingly important new areas of research.

								
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